Tell your broker everything – especially the bits you think they won’t want to hear.
I had a finance application recently that should have been relatively straightforward.
We’d spoken to the client, understood what they needed and approached a lender we thought was a good fit for the business. Then the lender carried out its checks and found something we hadn’t been told about – a company CCJ. The application was declined.
The frustrating part wasn’t necessarily the CCJ, because businesses pick them up for all sorts of reasons and there is usually a story behind them. It might relate to a disputed invoice, something that happened several years ago or a difficult period the business has since come through. What was frustrating, was had I known about it at the beginning, I could have understood the circumstances, decided how relevant it was and spoken to the lender about it before we submitted the application. If that lender wasn’t going to be comfortable with it, I could have gone somewhere else. Instead, they found it – and unfortunately, that changed the conversation.
One of the first things I tell clients looking for finance is to tell me everything. I don’t mean just turnover, profit, how much money you need and what you want it for – I mean I want to know about the bits you might be tempted to leave out because you think they don’t matter or because you think they’ll make it harder to get finance. The things I’m specifically thinking of include:
- CCJs,
- Historic credit issues,
- HMRC arrears or payment arrangements,
- Existing borrowing
- Previous finance applications.
- A difficult trading period.
- Changes in directors.
- Problems with customers.
- Anything unusual in the accounts.
I’d much rather know about it at the beginning, because lenders are going to carry out their own due diligence anyway. Credit records are part of the assessment process and, depending on the facility, they may want accounts, management information, bank statements, details of existing debt and other supporting information. Hoping something doesn’t come up isn’t much of a strategy. More importantly, something that looks bad on paper doesn’t necessarily look quite so bad once you understand what actually happened. That’s where a broker should earn their money.
The story behind the numbers
Commercial lending isn’t completely black and white. Two businesses can have exactly the same issue on paper and be very different lending propositions. A CCJ from six months ago which is part of a wider pattern of financial problems is one thing. A historic CCJ caused by a genuine dispute, which has been settled and sits alongside years of otherwise good trading, is another.
The same applies to a bad year in the accounts. Maybe a major customer went bust, or perhaps the business invested heavily in new machinery. It might have lost a contract and subsequently replaced it or gone through a restructuring which has now put it on a much stronger footing. Those things matter. A lender looking at an application needs to understand not only what happened, but why it happened and what has changed since.
Our job is to understand that story and work out which lender is most likely to listen to it.
Choosing the lender comes before filling in the form
This is one of the biggest differences between using an experienced commercial finance broker and simply making applications yourself. Different lenders have different appetites -one lender might immediately reject something another is perfectly comfortable with. Some will put more emphasis on historic accounts, while others may be more interested in current trading, cash generation, the debtor book or assets within the business.
That’s why I don’t believe in throwing an application at half a dozen lenders and seeing what sticks. The starting point should be understanding the business properly and then deciding where the application belongs. If I know there’s an issue, I can have that conversation before we get too far down the road, and explain the circumstances, provide the information the lender is likely to want and establish whether they’re comfortable with it. Sometimes they’ll say yes and of course, sometimes they’ll say no. If it’s a no, that’s useful information because we can move on without wasting everyone’s time or putting a poorly targeted application in front of a lender.
A declined application can make the next conversation harder
This is the other reason disclosure matters. Once an application has been formally declined, we may need to explain that when approaching another lender, depending on the circumstances and what we’re asked. That doesn’t mean one rejection makes a business unfinanceable, but it can make the job harder and potentially reduce the options available.
I’d much rather start with the widest possible choice of lenders and narrow that list intelligently than lose options unnecessarily because something important came to light halfway through the process. There are plenty of perfectly financeable businesses that don’t fit neatly into a lender’s standard criteria – that’s commercial finance.
Businesses have difficult years, directors make mistakes and customers don’t pay. Tax bills get behind, disputes happen and sometimes things appear on a credit record that need explaining. None of that automatically means finance isn’t available but give your broker the full picture.
If there’s something you’re worried about, tell us. If you’re wondering whether something is relevant, tell us anyway! I’ve been doing this for a long time and there isn’t much that surprises me. I’d much rather hear the awkward bit from you at the beginning than from the lender at the end.
